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Fuelling a revolution

The biodiesel industry is taking off. But its growth is a textbook case of how the market can stifle innovation, even when there's so much to gain, reports Rebecca Martin.

When Bev Logue and her husband, farmers in northern WA, heard about biodiesel, they were quick to give it a go. Committed environmentalists, the Logues have been making all the clean, green biodiesel they need from canola since 2003, using just two percent of their entire annual crop.

The Logues are one of the hundreds, if not thousands of individuals that are embracing the biodiesel revolution.

Able to be produced at home from a variety of 'easy to hand' products like wheat chaff, soya bean or canola oil, or even old cooking oil, biodiesel is low in emissions, has low toxicity and can be used in diesel engines.

Within the next 12 months the Biodiesel Association of Australia claims biodiesel output will hit the Federal Government's target of 350 million litres next year  and that's just the approved stuff.

Biodiesel can now be bought at a couple of bowsers in South Australia and the Hunter Valley in NSW, and the association says more service stations will start offering biodiesel over the next year.

But while this might sound promising, it's just a drop in Australia's annual fuel consumption, which is "at least 14 billion litres of diesel and a fair bit more than that in petrol," says Stephen Schuck, manager of the Bioenergy Australia forum.

And, considering technology to make biodiesel has been around for at least 25 years, its production has reached only a fraction of its potential. Blocked for years by market forces, the ongoing bunfight for control of the biodiesel industry is not only keeping things at a crawl but is threatening homegrown innovators like the Logues.

What are biofuels?

Biodiesel can be made from a range of products including cooking oil. Image: iStockphoto

Biofuels can be broken down into two main categories  ethanol and biodiesel.

Ethanol is really alcohol, and is typically made by using sugarcane waste, wheat or corn. It's mixed with your everyday petrol or diesel (in Australia the limit is 10 percent), reducing the carbon emissions of your car.

And if you're worried about what it does to your engine, don't be. Ethanol is a popular fuel in countries like Brazil, where it's estimated 4 million cars run on pure ethanol, and in the US there are cars that can deal with up to 85 percent ethanol fuel.

Biodiesel is made from oil, almost any type. Animal fat, canola, palm and soyabean oil are popular choices.

Like ethanol, biodiesel is blended with standard fuel, the Australian standard set at 20 percent biodiesel to fuel, or B20, and it should be noted the ratio could be a lot higher. Biodiesel can be used in any diesel engine.

Unfortunately in Australia less than three percent of vehicles have diesel engines, unlike Europe where around 50 percent of cars have diesel engines. As a result it's the European cars that can best handle biodiesel, along with large trucks and farm machinery.

Market forces

Some oil companies see biodiesel in the future oil mix. Image: iStockphoto

When fuel prices spiked in 2000, biodiesel began to be tossed around as an alternative to fuel.

Adrian Lake, a founder of the Australian Biodiesel Association, says the biodiesel industry had to put in "three or four years of hard work" negotiating a foothold in a market monopolised by oil conglomerates and car manufacturers who are threatened by alternatives like biodiesel and ethanol.

Lake says opposition still exists, but some oil companies have faced the inevitable and are moving into biofuel production.

"Their position is mixed. We've had advice from the petroleum companies that they see biodiesel and ethanol in the future fuel mix, but then again they don't want to lose control of the market," says Lake. "If they can make a buck out of it, they're interested."

Caltex, for example, claims to be the largest seller of bio-diesel in Australia.

David Lamb, a low emissions transport expert at CSIRO says the power of the oil lobby to stifle innovation cannot be understated.

"Woe betide the politician that is brave enough to change the tax regimes and other systems that favour big oil companies, "he says.

"Australia has abundant natural gas, but in just a few years time we will have very little oil left," says Lamb. "Isn't it strange for a country that has plenty of gas but has to ship in oil that only a handful of our cars run on gas?"

The experience of ethanol, biodiesel's competitor in the biofuel market, he says, illustrates the point.

As ethanol started being pumped into everyday vehicles, a government report was leaked to the media, suggesting ethanol would damage car engines. Consumers shunned ethanol-blended petrol and the accusation stuck, despite being wrong.

"When the news hit that more service stations were mixing ethanol with fuel, there was an almighty roar," says Lamb. "After all the hullabaloo, the car companies admitted that cars can run satisfactorily on ethanol, and would still remain on warranty."

Government intervention

Biodiesel has a 38 cent excise - the same as oil and petrolImage: iStockphoto

In 2003 the Government offered a capital grants scheme returning 20 cents to every dollar spent by anyone investing in infrastructure to produce biodiesel.

Companies, like the Australian Biodiesel Group and Australian Renewable Fuels, pumped millions into developing biodiesel production plants, of which there are now at least seven around Australia. It was around this time the Logue's started producing their own biodiesel.

Later that year the balance changed. Government-formulated biodiesel standards were put in place, shortly followed by the introduction of a 38 cents excise tax on biodiesel.

"The Government made a commitment that there would never be an excise on biofuels in 1998," says Lake, who is also a shareholder of the Australian Biodiesel Group.

"Then they go and excise ethanol and biodiesel at the same rate as oil."

However there is an out clause. If producers can meet the Government's biodiesel standards they can claim a full rebate of 38 cents, which makes it effectively tax-free until 2011 when it drops to a 19 cent rebate.

For industry players like Lake, the red tape is a blessing and a curse. While the excise increases the cost of making biodiesel, the rebate tied to the standards ensures quality control.

"Fuel quality is a big issue for a new industry," says Lake. "If you get mavericks out there that release bad fuel its just going to give biodiesel a bad name."

With testing procedures costing in excess of $3000 per batch, Lake is also aware that backyard operators, who have potentially devastating production power, will be pushed out of the market.

"The Australian Biodiesel Group has spent about a quarter of a million spent just on the lab needed to monitor and measure the fuel. Can you imagine how hard it would be for a small player trying to get into the market?"

Home brew

Canola is a popular source of biodiesel. Image: iStockphoto

The barriers frustrate backyard operators but don't seem to deter them, particularly in Western Australia.

University of Western Australia physicist and keen environmentalist Jonathon Thwaites has become something of a 'bootleg' champion and wants to speed up our transition from fuel to biofuel.

Thwaites says the biodiesel standards and testing costs have been set unnecessarily high to help companies shore up their market.

He says claims that homemade biodiesel is not of a high enough standard "are bullshit", and that the excise is illogical.

"There's no excise on LPG (liquefied petroleum gas) or CNG (compressed natural gas). The only reason is that the oil companies lobbied for it.

"It suits them well to make sure small distribution plants can't do this," he says.

Catapult was unable to get comment from several large oil companies on this issue at the time of publishing.

Thwaites says bootleg operators are heading underground to avoid the restrictions and their numbers are growing.

"People are not just keen, they're rip-roaring," he says.

He's doing his best to help them along, running biodiesel workshops on how to make biodiesel at home and opening a new business importing 'batches', the apparatus DIY'ers use to cook up their biodiesel brew.

Beverley Logue agrees there's plenty of enthusiasm. She receives a couple of phonecalls a day from interested people, and says it's almost impossible to get leftover cooking oil  the bootleggers ingredient of choice  from major regional centres in WA like Port Headland and Geraldton, as it's all been snapped up.

The Logues have chosen to become registered producers. Fully licensed, they're about to undergo the necessary tests to get the rebate on the 40,000 plus litres they're expecting to produce for their own use this year.

"We've done things by the book as we want to be public about what we're doing," she says. "We want to prove this is a better product and that anyone can make it. We can't go out and talk about it if we're making it illegally."

Logue's confident they will meet the standards required for the rebate, although she's considering having the testing done in America, where it will be cheaper, and says they've no intention of stopping production.

"Even though we end up less maybe 10 cents a litre than if we just sold the canola, I'm in charge," she says.

"It's better for the environment, it's returning to us the cost of making it and it's making us a little bit of money."